Mind the Gap – Translation Differences and Inflation Accounting

In the mid-1990s, a few years after I’d started LLP Group, I was asked by one of our international customers to go to Moscow to sort out the mess they’d made of their SunSystems implementation. They were using the system for the purchase of their affiliates’ products, for inventory management, and for sales to their direct customers and distributors all over Russia. And of course they were using SunSystems for both local Russian accounting and for balance sheet, cash flow and P&L reporting to their head office in the USA, in USD.

The mess was a mess of several kinds. The Russian authorities were accusing the company of understating its Ruble profit and of implicit tax evasion, and Head Office couldn’t make sense of the USD-denominated reports it was getting, which seemed to overstate profit. A major factor in both of these messes was the fact that Russia was then a ‘hyper-inflationary’ economy. Special accounting rules are supposed to kick in when cumulative inflation over three years exceeds 100%, but this organisation hadn’t even got the basics right, let alone Inflation Accounting.